This is a situation where the propriety of the appointment of an Interim Management Committee prior to the enactment of Republic Act 8799 (Securities Regulation Code) was the subject of a petition for review on certiorari. The case sought to set aside a January 2002 decision of the Court of Appeals affirming the July 2000 Order of the Securities and Exchange Commission (SEC), which sustained the SEC’s hearing officer appointing the Interim Management Committee.

The salient facts of the case are as follows: Mr. A, in his capacity as director and minority stockholder of X Corp., instituted a derivative suit before the SEC against Mr. B and Mr. C, officers of X Corp. Mr. A argues that Mr. B and Mr. C committed company plunder when they raided X Corp.’s coffers and diverted a multimillion-peso amount to various corporations (hereinafter referred to as B’s Group of Companies) where B is a substantial stakeholder, as well as to companies affiliated with X Corp. Mr. A prayed that Mr. A and Mr. B be ordered to account for and return the diverted amount to X corporation and that in the interim, a management committee be appointed to end the dissipation, wastage and loss of corporate funds.

In 1999, after both parties have submitted their respective evidence, the SEC Hearing Officer (SEC-HO) then issued an order creating an Interim Management Committee (IMC) to oversee the administration of X Corp. pending resolution of the dispute. The hearing officer explained that the massive diversion of funds and the constant bickering among the stockholders demanded the immediate creation of a management committee pendente lite. Then after the a motion for reconsideration was denied, Mr. B and Mr. C filed a petition for review raising the same issues to the Court of Appeals. The latter affirmed the decision of the SEC thus Mr. B and Mr. C brought the assailed findings of the Court of Appeals to the Supreme Court on petition for certiorari.

The Supreme Court ruled that the appointment of the IMC was fully warranted by the circumstances. The findings of the SEC-HO support the conclusion that there was imminent danger of dissipation, loss, wastage or destruction of corporate assets. The word “imminent” has been defined as “impending or on the point of happening,” while “danger” means “peril or exposure to loss or injury.” The findings of X Corp.’s external auditor support the conclusion the Mr. A and Mr. B’s unrestricted and continuous management of the corporation did pose an impending peril to corporate assets.

In addition, as admitted by the parties the prevailing internal dispute and feud between the parties had resulted in the total paralization of X Corp.’s business operations and adversely affected its collection efforts. In view of these facts, the SEC-HO was clearly justified in ordering the appointment of the IMC to oversee the operation of X Corp. and preserve its assets pending resolution of the parties’ dispute.

With regard to Mr. B and Mr. C’s argument that the appointment of the IMC caused them injuries, which far outweigh the benefits granted to Mr. A, suffice it to state that a management committee is not the representative or agent of the stockholder upon whose instance the committee has been appointed rather, it is for the time being a ministerial officer and representative of the court that is hearing the derivative suit. The Supreme Court further elaborated that since the appointment of the management committee is for the benefit of all interested parties, it holds and manages the property for the benefit of those ultimately entitled to, and not primarily for the benefit of the party at whose instance the appointment has been made. This writer believes that this is the most compelling argument in favor of the position that the SEC retains this power to constitute an IMC even after the enactment of R.A. 8799.

In fine, it cannot be denied that the circumstances obtaining in this case demonstrate quite clearly the need for the immediate appointment of a management committee. The competence of the hearing officer to issue the questioned order is fully warranted by law and the protestations of Mr. B and Mr. C thereto are groundless and illusory (Jacinto and Colayco vs. First Women Credit Corp. G.R. 154049 August 1, 2006).

Today, the debate continues and the jury is still out on whether the powers of the SEC to appoint a management committee for the same urgent reasons stated in the afore-discussed case, still hold or if these powers have all been transferred to the Regional Trial Courts (RTC). This writer holds the view that the SEC still has those powers although these may be exercised concurrent with the RTC.

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This is a situation where the propriety of the appointment of an Interim Management Committee prior to the enactment of Republic Act 8799 (Securities Regulation Code) was the subject of a petition for review on certiorari.